Pension Schemes in Indonesia: Tax on Pensions

Practical Law

SSEK Indonesian Legal Consultants partner Fahrul S. Yusuf and Maria Yudhitama, an associate at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to pension schemes.

The following is an excerpt from the Indonesia chapter of the Practical Law global guide to pension schemes.

Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

Employer contributions to supplementary pension schemes are not taxed.

Tax relief on employee contributions

Employee contributions to supplementary pension schemes are not taxed.

Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

A pension fund must be registered at the local tax office by obtaining a Taxpayer Identification Number (Nomor Pokok Wajib Pajak) (NPWP).

What is the tax treatment of investments made by the scheme?

Minister of Finance Regulation No. 234/PMK.03/2009 regarding Certain Investment Sectors Generating Income for Pension Funds Excluded as Income Taxable Objects provides non-income taxable investments by pension funds as follows:

  • Interest, discount and remuneration of deposits, deposit certificates and savings in Indonesian banks.
  • Interest, discount and remuneration from bonds, sharia bonds (sukuk), sharia commercial state bonds and treasury notes that are traded/reported to the Indonesia Stock Exchange.
  • Dividends from Indonesian listed companies.

What is the tax treatment of pension and lump sum payments made to members?

Tax treatment for lump sum pension benefits to members

Under Government Regulation No. 68 of 2009 regarding Article 21 Income Tax Rate for Income in the form of Severance, Pension Benefits, Annuities and Pension Plans paid in Lump Sum (GR68), lump sum payments of pension benefits will be free of income tax for the gross benefit of less than IDR50 million. A 5% income tax rate will be imposed if the pension benefit is more than this amount.

Tax treatment for pension benefits paid monthly

Pension benefits that are paid monthly will be subject to a progressive income tax rate based on Law No. 7 of 1983 regarding Income Tax (Income Tax Law), as amended.

Are there any other applicable tax charges on schemes?

There are no applicable tax charges on schemes.

To read the full guide to pension schemes in Indonesia, click here.

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